SYDNEY - Australian consumer confidence fell this month after central bank Governor Glenn Stevens increased borrowing costs for an unprecedented third straight month.
The sentiment index dropped 3.8 per cent to 113.8 points, according to a Westpac and Melbourne Institute survey of 1200 consumers conducted between November 30 and December
6 and released yesterday in Sydney.
Falling consumer confidence may give Stevens scope to keep the benchmark lending rate unchanged at 3.75 per cent when his board next meets in February, after quarter percentage point increases in October, November and this month.
A report today is expected to show Australia's unemployment rate rose in November to 5.9 per cent from 5.8 per cent, say analysts surveyed by Bloomberg News.
"This is a surprisingly modest fall in the index given recent developments on interest rates," said Bill Evans, chief economist at Westpac Bank in Sydney. "We must be getting close to levels of the variable mortgage rate where households become much more sensitive than is currently the case."
Stevens this month became the only central bank chief in the world to raise borrowing costs three times this year, citing a surge in consumer and business confidence as well as rising demand from China for exports such as iron ore and coal.
Business confidence jumped in November to the highest level in more than seven years, according to a National Australia Bank survey published on Tuesday.
"At the beginning of the year I would not have expected the economy to be looking as good as it does" now, Stevens said. "I thought things would turn out rather worse than they have. But who's complaining? Not me."
Investors are betting there is a 42 per cent chance of an interest-rate increase at the central bank's next meeting in February, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange late Tuesday.
All of the five components of the index fell in December, led by an 8.9 per cent drop in sentiment among households with a mortgage, yesterday's report said.
Assessments of whether now is a good time to buy major household items declined "only 2.3 per cent", Evans said. "Retailers should derive considerable comfort from the relatively modest fall."
- BLOOMBERG
